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July 6, 2012

Jobs Report Fail

Can we all just admit this now, forty months into the Obama administration? Our economic policy mix isn’t working. Today’s job numbers for June just underline the bitter truth. We’ve spent more money and printed more money in the last 40 months than in any comparable period in American history, and what we’ve got to show for it is a flabby, out of shape recovery that the IMF warns could be heading for a new recession.

There are those who say we need to print much more and spend much more to get the economy going again, and those who say that doing that will just get us deeper in the hole with nothing more to show for it. The likely result of this impasse is that we won’t do what anybody recommends, but bumble along instead halfway between the two extremes, hoping something turns up. And if we’re lucky, which I think we probably will be, the politicians won’t do the equivalent of pouring sugar in the gas tank by failing to resolve the budget and tax crunch coming at the end of the year. That’s not a solution; it just means we won’t deliberately drive our car into the ditch.

The Europeans, the Chinese, the Japanese and the Indians also look pretty stuck. None of them really seem to have clear solutions for the problems they face, and even if a clear solution emerged, it’s hard to see them summoning up the political will for big change.

A couple of quick observations, not to be mistaken for stock tips about all this:

  • The world’s economy and its financial system have become more complicated than our economists, our politicians and even our businessmen understand. Economic theory is not an abstract, theoretical science. It is an empirical one; what we know about economic policy is the result of centuries of trial and error experiment. The world economy has climbed a wall of failure for hundreds of years: each breakdown, each impasse forces us to come to grips with a new and more complicated set of dynamics. That’s what’s happening now.
  • This time it’s going to be harder than usual to figure things out. Too many dynamics have changed. IT is transforming both financial markets and the real economy. The rise of new economic powers with different agendas is changing the way the world works — think about the impact of those huge savings pools in Asia and the Gulf. The pace of change has accelerated, and that means the economy is changing faster and economic policy ideas are becoming outmoded faster than ever. Get used to it.
  • The world’s political institutions are as challenged as our economic policy ideas and tools. The Europeans haven’t figured out how to govern themselves and show no signs of resolving their problems anytime soon. India’s political impasse looks to be getting deeper. China has not yet figured out how to reform its system without a general meltdown and each year the social and political stress becomes greater and harder to manage. The US has the best constitution and political culture of the lot, but this, clearly, is not our finest hour. No political system can work very well when nobody really knows what to do.

In American politics, we seem to be back to 2004. We have a president who doesn’t, on the basis of performance, deserve re-election, and a challenger who hasn’t yet demonstrated that he would be better. Senator Kerry never managed to change that; in the end Americans in 2004, ready as they were to dump President Bush, decided that the incumbent was the lesser of two evils. Governor Romney, so far, hasn’t done much better than Kerry. He still has time to change that dynamic, but if he doesn’t, this really will be 2004 all over again, and the public will decide between two candidates that a majority would prefer weren’t in the race at all.

Economies do tend to turn around at some point. People all over the world want to make money, and in spite of all the obstacles in their path, they will keep hustling and bustling until something works. Among other things, this particular economic patch is bad because between 1984 and 2007 this country had one of its longest periods of prosperity ever with only a couple of short blips of turbulence. After a smoother than average ride for 23 years, it isn’t, from a historical point of view, all that surprising that things have slowed down.

Nevertheless, the whole world today is watching the very public failure of its economic and political leadership. The longer this continues, the more people around the world will turn to new and non-mainstream ideas. Some of them may turn out to be exactly the kind of brilliant and innovative new ideas that can make life much better; some will certainly be old, bad ideas that bring ruin and blood.

Let’s hope for better news from the jobs report next month.

Posted in Economics & Business, Election 2012, History, Obama, Politics, Quick Takes
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  • Eric from Texas

    Looks like we now know whom Via Meadia would endorse for President. “None of the above.”

  • Kenny

    “People all over the world want to make money, and in spite of all the obstacles in their path, they will keep hustling and bustling until something works.”

    Ture, but the trouble is that the bankesters and crony capitalists in Amertica, in cahoots with our corrput political class, are effectively stealing not only the wealth but also the future from the middle class.

    If you have a discerning eye, everywhere you look you will evidence that our financial system is a house of cards waiting for the right event to knock it down.

    America could well be at a generational turning point (a sacrulum 80 year cycles) similar to 1) the pre-Revolutionary War, 2) the civil War, 3) the Great Depression & WWII, and 4) now — per the book the ‘Fouth Turning’ by Howe.

    If so, things are not going to reset and bring us back to the pre-2008 world. This dovetails with Mr/. Mead’s thesis on the demise of the Blue model — and more.

  • Jacksonian Libertarian

    Looking back a clear solution presents itself, Reagan’s tax cuts, spending cuts, and regulation cuts, which pumped capital into the economy and reduced the burden of Government on the economy at the same time.

    “There’s a reason it’s called Capitalism; it’s because Capital is what fuels it.” Jacksonian Libertarian

    Stop sucking the capital markets dry (-$1.3 Trillion per year, -$6+ Trillion since the Democrats took control in the 2006 election), and start filling them to fuel a recovery. It was the first Democrat’s budget in 2007 (-$485 Billion deficit) which launched us into Great Depression 2.0.

  • chase

    An interesting post. For some additional analysis on this issue, check out this blog post by Richard Posner. Posner is interesting in that he has embraced Keynesian policy prescriptions as a way to arrest the economic depression in spite of the fact that he is normally associated with the free market wing of the GOP. He also is very honest and doesn’t try to shoehorn his opinions to fit into an ideological mold. For example, he thinks that the stimulus was too small and he also believes that Obamacare was not a good bill because it created additional uncertainty. Enjoy.

    Why Unemployment Remains So High—Posner

    http://www.becker-posner-blog.com/2012/05/why-unemployment-remains-so-highposner.html

  • http://nationaldebtprimerplan.blogspot.com/ GC

    “Among other things, this particular economic patch is bad because between 1984 and 2007 this country had one of its longest periods of prosperity ever with only a couple of short blips of turbulence.”
    What happened in 2008? “Prosperity” evaporated – because the pre-2008 prosperity wasn’t real, wasn’t sustainable and wasn’t economic growth.
    Without the Fed’s manipulation of interest rates, without the Iraq War, without the excessive use of debt by consumers and the federal government, “prosperity” would not have been.
    The US has lost millions of jobs to automation and China. Until wages and business taxes decline, and/or new industries emerge, these jobs are not returning in material numbers. Our current unemployment is not cyclical (ie, not the reduction of a surplus of working capital and/or fixed capital), but structural and cultural. Structural, in that the jobs available do not match the skills available and cultural because there are many people who can’t hold any job.
    Anyone who thinks politicians can improve the fundamentals is naive. They can make things worse by implementing expensive, ineffective programs and they can make things better by ending the expensive, ineffective programs.
    And that is the choice we have in November.

  • WigWag

    “The world’s economy and its financial system have become more complicated than our economists, our politicians and even our businessmen understand” (Walter Russell Mead)

    Utter nonsense.

    The world’s financial system may be more complicated than ever but the capitalist economy operates on the same fundamental principles that it always has and those principles are largely understood; they were elucidated less than a century ago.

    Professor Mead is conflating ignorance with stupidity. We are ignorant about neither the cause of the current economic problems nor of the solution; we are merely too stupid to implement those solutions.

    Professor Mead is correct that the problem is essentially political stagnation. As long as right wing ideologues (which includes virtually the entire Republican Party) and Tea Party acolytes continue to fantasize about a world of small government, unregulated free enterprise and low taxes things will continue to get worse.

  • BillH

    All this real-time data and all these hi-tech computer models, and our pointy-heads still can’t figure it out? Maybe it’s not the world that has become muddled, but our elite’s ability to think instead.

  • Jacksonian Libertarian

    “The world’s economy and its financial system have become more complicated than our economists, our politicians and even our businessmen understand. Economic theory is not an abstract, theoretical science. It is an empirical one; what we know about economic policy is the result of centuries of trial and error experiment.”

    The scientific method says that if your hypothesis isn’t predictive (experimental or historical evidence doesn’t support it), then the hypothesis is wrong and you are supposed to go back and find a hypothesis that is predictive.

    Economists are quacks; the definition of insanity is doing the same thing over and over again and expecting a different result each time. Economists continue to advocate their so called theories, despite the fact that they are not predictive and have all failed. A scientist would have gone back and immediately reviewed their hypothesis the moment it failed.

    Economists are not scientists, and their so called discipline never rises to an actual search for the Truth.

    There is only one law of economics “The Law of Supply and Demand” the rest is all unsubstantiated opinion that a scientist would call wrong.

  • wanderer

    “Can we all just admit this now, forty months into the Obama administration?”

    Mead is pathetic.

    Private sector employment has already recovered to within a hair of its level as of Inauguration Day 2009.

    That didn’t happen for Preznit Dubya Shrub until the summer of his *second term*

    Here’s a handy little tool showing private sector employment, courtesy of those much-maligned Blue Bureaucrats at the Bureau of Labor Statistics:

    http://data.bls.gov/timeseries/CES0500000001

    Of course, the recovery of private sector jobs since President Obama’s inauguration has been counterbalanced by heavy losses in public sector jobs, from 22,471,000 in January 2009 to 21,936,000.

    Now under Preznit Dubya Shrub, public sector jobs increased steadily, from 20,753,000 in January 2001 to 21,621,000 in December 2004.

    Count on Republicans to cover private sector job losses by growing the number of guvmint bureaucrats.

  • thibaud

    Mr Mead’s exaggerating again. Yes, jobs growth could be better, but it could also be a lot worse: look at conservative Britain.

    In fact, Britain and the US offer an almost perfect test case for the austerity vs stimulus debate. Both governments pursued Keynesian stimulus in 2008-09 in order to avoid a depression, but since early 2010 Cameron’s conservative government in the UK has slashed spending, while the continuation of ARRA by a liberal US government has meant increased spending.

    Here are the results: since May 2010, both US unemployment and the US government deficit have declined faster and farther than unemployment and deficits in the UK.

    So much for the shallow anti-Keynesian arguments.

    Here’s a crisp summary by the author of the outstanding multi-volume biography of Keynes, Robert Skidelsky:

    http://www.tnr.com/article/politics/magazine/104220/austerity-keynes-uk-us-skidelsky

    “While the Obama administration continued to stimulate the U.S. economy—through the Recovery and Reinvestment Act of 2009—George Osborne, the new British Conservative chancellor, pursued a modified Hayekian experiment. The government set out to slash public expenditure by £99 billion—or 7 percent of GDP—per year by the 2015–2016 fiscal year and increase taxes by another £29 billion per year.

    “Two years later, the score card is in. Since May 2010, when U.S. and British fiscal policy diverged, the U.S. economy has grown—albeit slowly. The British economy is currently contracting. Unemployment in the United States has gone down by 1.4 percentage points; in Britain, it has gone up by 0.2 percentage points. And despite keeping up stimulus measures, the Obama administration has been more successful in reducing the government deficit—by 2.5 percentage points compared with Osborne’s 1.9 percentage points.

    “Earlier this year, Paul Krugman wrote that “Britain . . . was supposed to be a showcase for ‘expansionary austerity,’ the notion that instead of increasing government spending to fight recessions, you should slash spending instead—and that this would lead to faster economic growth.”

    “But, as Krugman wrote, “it turns out that . . . Britain is doing worse this time than it did during the Great Depression.”

  • wanderer

    JL@3:

    “Looking back a clear solution presents itself, Reagan’s tax cuts, spending cuts, and regulation cuts, which pumped capital into the economy and reduced the burden of Government on the economy at the same time.”

    Preznit Dubya Shrub did all this in his first term, and it created far private sector fewer jobs than Obama’s policies have, to equivalent points in their first terms.

    You’re ideology is talking, not facts.

  • joe Ynot

    Your Bush/Kerry analysis is only good up to a point, which is that Bush was a Center-Right (default majority position of US electorate) candidate while Kerry was a Center-Left (default minority position of US electorate)candidate. With Obama/Romney, the positions are reversed, with Obama even a little more to the Left than Kerry, and with the economy in vastly worse shape, though we are not involved heavily in foreign wars.

    While I wish Romney were more aggressive, he is probably doing the right thing by keeping it low-key until the convention.

  • http://facingzionwards.blogspot.com/ Luke Lea

    There are two subjects people never agree on. One is religion, in particular, how to interpret the Bible. The other is what is wrong with the economy.

    I remember a quote in Paul Samuelson’s famous textbook. It went something like this: only one in ten thousand understands the economy and we meet him everyday.

    What amuses me — I suppose amuse is the right word — is how positive everyone is about his own private opinion. They don’t just know the answer. They say it is obvious, simple, as plain as the nose on your face.

    Well, I’m no better than the average person. So I say that inflation is obviously better than austerity. Austerity will cause the economy to contract. Inflation is not contractionary. But even better it has the advantage that it reduces everyone’s indebtedness, including the governments. We need to deleverage and inflation brings about deleveraging all across the board.

    Why it’s as plain as the nose on your face. (Of course inflation his disadvantages too but we won’t go into those. he he)

  • http://fmpait.blogspot.com/ Felipe Pait

    “There are those who say we need to print much more and spend much more to get the economy going again, and those who say that doing that will just get us deeper in the hole with nothing more to show for it.”

    There are also those who know that dinosaurs roamed the Earth 100 million years ago, and others who say that the world was created 6 thousand years ago. There are those who know that there are 6×10^23 molecules in a mole of substance, and those who believe in homeopathy.

    This is an unscientific dichotomy that has no place in a serious discussion.

  • http://backwardsboy.blogspot.com/ BackwardsBoy

    “People all over the world want to make money, and in spite of all the obstacles in their path, they will keep hustling and bustling until something works.”

    I find it curious that the biggest obstacle of all isn’t mentioned in the article: intrusive government, and the overly excessive and stifling regulations that accompany it.

    Unless and until we begin to drastically reduce the amount of governmental interference, no economy will be able to recover. We have reached a tipping point where each new regulation imposed by politicians with little economic knowledge can do nothing but inhibit the creation of wealth.

    It is not action by the government that is needed, but a thorough re-examination of the role that government plays in restricting the economy, followed by reducing or eliminating excessive regulation.

  • jetty

    “and the public will decide between two candidates that a majority would prefer weren’t in the race at all.”
    .
    This, unfortunately, will never change.

  • Kenny

    Loss of pubic sector employment is an net good for the country because the public sector has become extremely bloated.

  • Anthony

    Corporate America’s efficiency seeking impluse: “stability for the classes and instability for the masses” provides present contextual backdrop for position developed in WRM’s Quick Take (see “Macroeconomic Resilience” – Creative Destruction and The Class Struggle).

  • thibaud

    Very strange that the seeds of the current crisis were planted by noen other than that libertarian hero, Alan Greenspan.

    Funny that the accusations of hubristic ignorance never seem to attach to the easy money mandarins who got us into this mess.

  • Tom Gates

    As opposed to Wig Wam’s side of the political spectrum that knows zero bounds to what government can do and has chased out every moderating influence the Dems ever had. Remember the Senator from CT? Voted 99% for every liberal domestic cause, but disagreed on one foreign polciy issue. Boy that is the party of open ideas! Well Wig Wag, and I am quite sure you work for the government, a union or higher ed, heck maybe all three, when you are living in your cave you can write all about our grand failure along with all of the other “ism” failures of the 20th century. Maybe then your hubris of which knows no bounds, will get the comeuppance it surely deserves.Best of luck.

  • WigWag

    “Mr. Mead’s exaggerating again. Yes, jobs growth could be better, but it could also be a lot worse: look at conservative Britain.” (thibaud)

    You can’t possibly be right, thibaud. Perhaps you haven’t heard but we have it from no less an authority than Professor Mead that David Cameron’s policy prescriptions are exactly right; in fact, the Prime Minister is already vying for greatness. According to the Professor, Cameron should be compared with the greats such as Attlee, Winston Churchill (great even in decline), Margaret Thatcher and Tony Blair.

    If you would like to read more about how Prime Minister Cameron is well on his way to putting the “Great” back in Great Britain, I heartily recommend Professor Mead’s post from October 7, 2011. It’s entitled. “Great Britain’s Man with a Plan” and it can be found here,

    http://blogs.the-american-interest.com/wrm/2011/10/07/great-britains-man-with-a-plan/

    In the post Professor Mead labels British opponents of Cameron’s austerity measures as “mediocrities.” Despite all the forces of barbarism arrayed against him, Professor Mead assures us that in Prime Minister Cameron, Great Britain has found a leader of Arthurian stature. He informs us that,

    “…this Prime Minister is a rare thing: A leader with a vision for the future and the courage to stick to it.”

    In his giddiness to conclude his paean to the British Prime Minister with a rhetorical flourish, Professor Mead assures his loyal readers that,

    “David Cameron understands that it is time to make another leap into the future; it is too early to predict whether he will succeed, but it is already time to congratulate him on the kind of courage and vision that over the last 300 years have kept Great Britain in the forefront of human affairs.”

    Now that the results are in (at least partially) do you suppose Professor Mead is still so irrationally exuberant about the British Prime Minister? It’s hard to know because he hasn’t told us.

    As the results you cite in your comment suggest, thibaud, it looks like the good Professor had directed his adulation at the wrong Brit. It’s not the pencil-necked geek who currently squats in a Downing Street home who should be celebrated; it’s the gay British economist who was a card carrying member of the Bloomsbury group and died in 1946 who is the real hero.

    Long after Prime Minister Cameron’s reputation rots on the dung heap of history (right next to the equally dimwitted John Major), Keynes will still be celebrated as the genius he was.

    His policies work, that is when they are fully implemented. When they are partially implmented, as Obama did, they work partially. Of course, as you point out, even partially implmented they work far better than the policy recommendations of the likes of Cameron and American Republicans.

  • Susan

    “I find it curious that the biggest obstacle of all isn’t mentioned in the article: intrusive government, and the overly excessive and stifling regulations that accompany it.”

    Yes, agree. Even big government spending Keynesians would have to agree that no matter how many trillions in tax dollars are spent building light-rails, their Statist government’s own overly excessive and stifling regulations prevent that light-rail from ever coming to fruition.

    Government does not create jobs, government creates bureaucracy.

    And bureaucracy is a fatted monster whose only interest is in feeding itself.

  • thibaud

    Since May 2010:

    Keynesian policies (US) => deficit falls -2.5%.
    Anti-Keynesian policies (UK) => deficit falls -1.9%

    Keynesian policies (US) => unemployment falls -1.4%.
    Anti-Keynesian policies (UK) => unemployment rises +0.2%.

    It’s all very confusing. This can’t be happening.

  • Jim.

    How could this possibly be?

    How could the month that saw ObamaCare upheld–that boon to the private sector, that gift to employers, that crowning glory of economic wisdom and right thinking — possibly see anything but a wild and enthusiastic boom in hiring?

    Could it be that Eurosocialism isn’t the answer?

    Naaaaaahhhhhhhhh….

  • Corlyss

    @Jim
    “Could it be that Eurosocialism isn’t the answer?”

    The answer to that question really doesn’t matter as long as 3/4 of the only 2 parties that count believe in it. Their “come to Jesus” realizations about Eurosocialism are decades off. The people love voting government largess for themselves. Who’s gonna tell them, “no?”

  • Jbird

    Mice try Wig Wag

    In what world is Great Britain actually practicing Austerity? Sure, they pay lip service to it, but I don’t believe spending has actually been reduced in any meaningful way. According to the Gardian, here’s how public spending looks over the last few years:

    2008: 583.1 bn pounds
    2009: 629.8 bn pounds
    2010: 670.1 bn pounds
    2011: 687.9 bn pounds
    2012: 687.6 bn pounds estimated

    That is slash and burn, eat your seed corn austerity? 300 million pounds, that’s anti-Keynesian? We were all sold these stimuli on the idea that they were temporary bumps in spending, but now all of a sudden, the stimulus level spending is the baseline and we are told we need to double down (which will become the new baseline in turn). How much more should Cameron have increased spending to be considered Keynesian?

    To boot, Cameron raised taxes, not exactly a tea party action hero if you ask me.

  • Jbird

    Additionally, GB’s deficits are increasing in part due to lower tax receipts as they slip down the back side of the Laffer Curve. The idea that government deficits can be spent away is a little silly, and using bloated baselines and % of increase/decrease to make your point (thibaud) is a tad misleading.

  • thibaud

    Funny to watch people wriggle and writhe to avoid the obvious: when you’ve lost a trillion in aggregate demand, you need to replace it.

    Cameron’s attempting to do the opposite, and his government’s results have been worse than Obama/ARRA’s results.

    We can disagree on the precise balance of stimulus and fiscal reform/cuts – fwiw, the best hedgefund investor of the last 30 years, Ray Dalio of Bridgewater, thinks Obama got it about just right – but it’s obvious that austerity at this point in the deleveraging cycle is foolish and self-defeating.

  • WigWag

    “In what world is Great Britain actually practicing austerity? Sure they pay lip service to it, but I don’t believe spending has actually been reduce in any meaningful way” (Jbird)

    In what world, Jbird? Well for one in Professor Mead’s world. In his post of October 7, 2011 (I linked to it above) he said,

    “The coalition government’s austerity program has cut an average of 20% of the budget from all governmental
    institutions.”

    I understand that you may find the cuts from Cameron’s cleaver insufficient, but if the cuts he’s already made have ripped the guts out of the British economy, what do you think the results of even larger cuts would be?

    It doesn’t take a genius to figure it out.

  • Gary L

    In American politics, we seem to be back to 2004. We have a president who doesn’t, on the basis of performance, deserve re-election, and a challenger who hasn’t yet demonstrated that he would be better. Senator Kerry never managed to change that..

    The lesson may be, “The Kennedy thing is over – don’t nominate any one from Massachusetts!”

  • http://fmpait.blogspot.com/ Felipe Pait

    Thibaud, way back when I never understood what the fuss was about Greenspan. I had a vague feeling that something was not right, but that the grown ups knew something that a mere engineer like me did not.

    Now it seems right and left agree that Greenspan didn’t have a clue what he was doing. At least I learned not to trust anyone over 30 ;-)

  • thibaud

    VM has become an all-spin, all-the-time zone.

    Cameron’s anti-Keynesian policies are failing – but, not to worry, they aren’t really anti-Keynesian.

    Romneycare in MA is intact and doing fine, mandate, tax increases notwithstanding – but not to worry, Romneycare doesn’t have mandates, er, taxes, I mean mandates.

    No wonder that political focus groups say they can’t believe that Ryan and Romney are seriously proposing to gut medicare while slashing taxes on millionaires. The GOP’s losing its collective mind.

  • thibaud

    Felipe – Greenspan is a good example of that apothegm about libertarians:

    Any precocious teenager who’s not a follower of Ayn Rand at age 13 has no heart.
    Any precocious teenager who’s still a follower of Ayn Rand at age 19 has no brain.

    Greenspan’s a lifelong fan of Ayn Rand.